Food exports to China have been growing for some years now. Chinese consumers are known to pay a premium for foreign food and beverage as it is perceived to be safer and healthier, more prestigious and having interesting, unique varieties to feed their inherent curiosity. Yet one of the big drivers for shipping food from afar is that in many cases, they are actually cheaper and meet a demand that local produce can’t serve.

Although China has long been known for low wages and exporting cheaply produced food, for many food categories, China finds itself unable to supply enough food at a quality and price acceptable to Chinese consumers. The well-cited stat that China has to feed over 20% of the world’s population with just 7% of its farmland means this shortage will be around for some time yet.

The benefits of well branded food and beverages is nothing new – they can command a higher premium and are less susceptible to fluctuations in commodity prices and new lower-cost producing markets coming on board such as Latin America, Southern Asia and Africa. But having well-branded food products has become increasingly important as producers face mysterious delays and inexplicable rejections for food imports into China due to geopolitical tensions, and of course, increasing tariffs or lowering tariffs for competing exporters. In most cases, the hold ups at the border are commodities rather than branded products. With tariffs, well-branded products will always fare better as consumers are much less price sensitive to a brand they like than a no-name product.

Food producers don’t have to be one or the other. Selling commodities often provides cashflow that can be used to invest in building a brand. But to reduce exposure in these increasingly uncertain times, the advantages of branded products have never been more pronounced. Even if you already have branded products, it’s likely you could make them more resonant with consumers from optimised branding, messaging and other communications, being in the right channels and integrating those channels, having more appropriate packaging and formats and even loyalty programmes. China Skinny can assist you with these. We hope you enjoy this week’s Skinny.

Chinese Consumers

China’s Consumer Inflation Picks Up, Driven by Food Price Gains: China’s consumer inflation accelerated to the fastest pace in six months, driven by surging food prices, while producer prices escaped near deflation on a recovering economy. The consumer price index rose 2.5% last month from a year earlier after gaining 2.3% in March, while factory prices gained 0.9%. Food prices were up 6.1%, with prices for fresh vegetables up 17.4% and pork prices jumping 14.4%, the most since mid-2016.

5 Key Customer Loyalty Tactics You Need to Consider for China: 82% of Chinese customers have claimed that they would spend more if they were offered a loyalty scheme and 94% participate in at least one program. Chinese loyalty schemes should be related to your category and generally involve one of a combination of the following key tactics: 1. Extra credit or discounts by prepaying a certain amount; 2. Amazon Prime-type paid memberships bundling an ever-increasing number of services and perks; 3. A collection of loyalty benefits from multiple non-affiliated brands under one single platform; 4. Engagement-first reward programs utilising China’s hyper-connected digital ecosystem; and 5. Making onboarding immediately rewarding.

In Trade War, How Much Can Beijing Fight Back?: China has imposed additional taxes on a wide range of American goods worth $60 billion – rising to 15-20% while only a few will be taxed at 25%. Yet Beijing has left out some crucial goods from increased taxation. They include technology-related products and farm commodities like soy beans. Beijing wants to minimise the domestic economic impact caused by tariff retaliation which has seen it exclude commodities that might cause greater domestic repercussions. China also has non-tariff options in its war chest which are looking more likely to be used given recent US actions such as banning suppliers to Huawei. Huawei currently gets 36% of its inputs from US companies like Intel, Qualcomm and Google’s Android.

To Many Chinese, America Was Like ‘Heaven.’ Now They’re Not So Sure: Divided popular opinion – and ambivalence about America, even among some of its most ardent fans (and critics) – makes it difficult for Beijing to come down too hard on the United States. But if it does too little, the party risks looking weak. In the latest Pew research in 2016, 45% of Chinese saw American power and influence as a major threat to their country, up from 39% in 2013. More than half of Chinese believed the United States was trying to prevent China from becoming as powerful as America. Chinese student growth to America has slowed from a high of nearly 30% in 2010 to just 3.6% last year.

Food & Beverage

China Copes With Pork Shortage By Feasting on Luxury Australian Steaks: The African Swine Flu – not known to harm humans – is predicted to slash China’s pig supply by 20-30% this year, leading to pig-meat shortages. Imports of pork, beef, seafood, poultry and sheep meat supplied by countries from Brazil to New Zealand are booming. Beef imports alone are expected to hit 2 million tonnes this year, up from 812,000 tonnes in 2016. Pork imports – which mostly come from the European Union, Canada and Brazil – may surge 40%. There is also a shift domestically from pigs to chickens, with swine feed output dropping 27.5% and poultry feed production up 8.6% for the first four months of the year.

Chinese Consumers Shocked by 78% Price Hike on Fruits: The average price of fruits at Xinfadi Wholesale Centre is 6.15 yuan ($0.89) per kilogram, an increase of 78% from the same period last year. Gold nugget tangerine prices have doubled. According to official CPI data, the price of fruit increased by 11.9% in April from a year ago.

China Unveils Plan to Strengthen Food Safety: China has unveiled a guideline to enhance the country’s food safety with a phased plan to build a modern governance mechanism in the field. More than 97% of the country’s major produce should pass quality and food safety tests by 2020, while over 98% of food should pass spot checks, according to the guideline released by central authorities.

Clear Understanding of Chinese Consumer Demand is Key to Packaging Products: Transparent packaging is popular for fruit and vegetables, but there is growing importance for labels that allow customers to immediately recognise branding. Packaging that can safely hold food for a prolonged period is critical for many consumers, with those allowing for easy carrying playing into the Chinese consumer’s needs for convenience. Raw packaging materials, particularly around sustainability are increasingly more important. Comparing Chinese and European packaging is further evidence of the importance of packaging in the market.

Starbucks’ Chinese nemesis surges 20% in public debut: Just 18 months after launching, Luckin Coffee has IPOed on Nasdaq, with stock initially climbing 50% after listing, settling back at 20% above list price. The coffee company which is closing in on Starbucks for number of stores in China now has a market cap north of $5 billion.

Social App Little Red Book Starts to Eliminate Micro-influencers: New rules on popular platform Red have banned influencers from establishing a business relationship with brands unless they have at least 5,000 followers, and their average post view of the past one month exceeds 10,000. 13,000 influencers have been impacted by the rule change.

Chinese Tourists

Trade War is Putting Chinese Tourists off US, with Many Opting for ‘More Welcoming’ Nations: Chinese tourists are taking their money to European countries such as Italy and the UK because they feel more welcomed according to Ctrip. During the Labour Day holiday in early May, the US ranked as the ninth most popular travel destination for Chinese tourists, down from fifth spot last year. One of the fastest climbing destinations was Croatia, which saw visitors surge more than fourfold during the May holiday this year as a result of the Game of Thrones location. Iceland rose 300% and Malta 140%.

“After 5,000 years of trials and tribulations, what kind of battle have the Chinese not been through?” asks the anchor on state broadcaster CCTV, referring to the escalating the trade war. The clip received more than 3.3 billion views. “Negotiate— we can! Fight— bring it on! Bully us— YOU WISH!” says the Chinese Communist Party’s official newspaper the People’s Daily.

In a recent China Skinny fashion project, “国潮” – “China trend” often came up when speaking to consumers. It is something brands across many categories should consider incorporating into their mix to resonate with their target market. There have been many contrived attempts from foreign brands hoping to connect with Chinese culture, however we’ve found some of the most successful examples have been collaborations with local artists and cultural influencers. This could mean working with local fashion designers right through to well-known local chefs for product development and promotion.

Yet beyond trying to connect more with Chinese culture, countless foreign brands could align more with Chinese consumers by simply getting the basics right. Too many brands are still trying to force western sales channel strategies into China’s unique marketplace, others are using armies of Caucasian models to show Chinese how good something may look on them, they’re stocking the wrong sizes, shapes, packaging, formats or even flavours. Some are even developing China strategies based on talking to the ethnically Chinese who haven’t lived in China for some time, or are from a different region to their target market.

Heritage is Hip With Chinese Millennials: Post-90s Chinese are the most willing to spend on culture and the popularity of Chinese heritage items consumed by millennials is case in point. Examples include Forbidden City-branded items, the National Treasures TV show, arts and crafts collaborations by Pechoin, Chinese-style street fashion brand Mukzin revisiting historical fashions and Hey Tea’s twist on tea culture. Foreign strategies can better serve this by sharing their own heritage and know-how in a cool, modern way, by building a deeper knowledge of Chinese culture and history and reviving ancient Chinese arts and crafts with the help of local experts and designers.

China’s Population to Peak in 2023, Five Years Earlier than Official Estimates, New Research Shows: China’s birth rate fell to its lowest since 1961 last year, indicating that most, if not all, of those parents who wished to have a second child already had done so since the one-child policy was abandoned in 2015. The number of women of child-bearing age (15 and 49) is expected to decrease by 56 million between 2018 and 2033, with 27 million fewer children aged nine or younger by 2028 – 17% less than today.

Chinese Millennials are Rejecting Dull Factory Jobs — and Transforming the Economy: China’s 400-million-strong millennial generation want less boring work, with better pay and more free time to spend money. Millennials tend to be entrepreneurial; “happiness seekers”; and want fulfilment, not just financial stability, but also in their work. 97% of Chinese millennials would prefer to work for a company whose values were similar to their own. As China moves up the economic curve, many of the low-skilled jobs are moving to nations where labour is cheaper – between 2005-2016 manufacturing wages in China have increased five-fold in China. Manufacturing accounted for 47% of GDP in 2010 but only 40% in 2017 — when services accounted for more than 50%. In the first half of 2018, services contributed 60.5% of China’s economic growth and accounted for 45% of employment.

Mother Day’s Spending Shows Growth Potential: Chinese aged 25-40 are the driving force of gifting on special occasions, with gifts not restricted to flowers and food, but also “expensive” items such as electronics, jewellery, healthcare products and travel. A recent study from Ctrip from 60% of Chinese with senior parents have become more likely to spend money for their folks to travel.

Digital China

Chinese Online Consumption of Domestic Brand Products Quickens in 2018: Report: The value of Chinese brands bought on JD.com grew 8% more than foreign brands last year, with volume growing 14%. Chinese brands also saw more online orders for products such as maternal and child products, whose markets were dominated by their foreign counterparts last year. Top-tier cities reported the strongest growth, with enthusiasm robust with millennials.

Chinese Ecommerce Giant JD.com Exits Australia: Chinese e-commerce giant JD.com has closed its office in Australia less than 15 months after opening with ambitious expansion plans. It is part of a company-wide response to widening losses. JD.com said there would be no change to its service and partnerships with Australian and New Zealand exporters, which would now be managed by JD.com staff in China. JD also rebuked rumours of a reducing staff in China, claiming its total headcount increased by 1,000 year-on-year last quarter. Alibaba opened an office in Australia in 2017 and says Australia is its fourth top country globally selling products into China.

Food & Beverage

Hema Fresh Launches New ‘Hema Market’ Brand Store in Shanghai: Hema has launched Hema Market in a strategy of locating near large residential communities, with reduced or removed in-store dining and prepared food areas, scaled-down fresh seafood and aquatic product offerings, and a focus on daily staple foods – effectively a New Retail version of a wet market. Future Hema Markets are expected to include service counters addressing other basic residential community needs for laundry, beauty and hair styling, health and fitness, home cleaning, and child care, among other services. While Hema Fresh targets younger, more affluent, less price-sensitive consumers, Hema Market focuses more on older, more price-sensitive, common consumers in nearby communities.

World Alcohol Consumption on the Rise as China’s Thirst Grows: Annually, Chinese men drink more than 11 litres of pure alcohol – mostly in the form of spirits and beer, while women consumed three litres. Average consumption has increased 70% since 1990 and Chinese are on track to surpass the US for per capita intake by 2030.

Penfolds ‘Copycat’ Ordered to Pay More than $800k AUD ($555k) for Trademark Infringement in China: A Melbourne federal court has fined Australian company Rush Rich Winery $400,000 ($278k) and ordered them to immediately cease production of wine with any mark “substantially identical with or deceptively similar to” Penfolds’ Chinese branding. A Shanghai court also ordered Rush Rich to pay $426,000 ($296k) in compensation. In China, Penfolds operates as “Ben Fu”, meaning “chasing prosperity” which has a similar meaning to “Rush Rich”.

How to Attract Self-Driving Chinese Tourists: Most Chinese self driving tourists are 30-49, with those aged over 41 travelling for 35 days on average, compared to just 18 days for under 24s. 40.3% of roadtrippers do it with family, 32.1% with a significant other, 11.9% with parents and 8.5% with friends/colleagues. USA, New Zealand and Australia are the top-3 countries. Ctrip now offers car rentals that specifically come with Chinese GPS. The most-viewed WeChat post by any national tourism board in Q3 2017 was Destination Canada’s article on seeing maple trees in Canada, with a recommended driving route for the best fall foliage. Visit Florida’s KOL campaign to encourage roadtripping in the state received over 57 million views.

Marketing in China hasn’t undergone the long evolution that many of us have grown up with in the West, and as a result, Chinese strategies are usually without the often-outdated and expensive approaches of traditional marketing. Instead, they’ve grown up with a mobile-first model, where everything is much faster and more data-driven.

As we find at the Skinny, effectively harnessing China’s unique digital ecosystems can garner much greater insights into consumers. This allows brands to build better products and services while improving engagement with consumers because they know a lot more about them.

Many who have marketed in the West tend to approach things from a channel-centric model, whereas successful marketers in China have to be much more consumer-centric, putting them ahead of individual sales and marketing channel-based strategies – online and offline – as much of these have become blurred.

Whitler’s extensive study highlighted the energy and excitement from Chinese-based companies. The size of the prize and growth in China has attracted the best from all over the world, and brought the money with it, creating an incredibly competitive marketplace where you have to innovate, and fast. This was summed up by the Head of Visa for Greater China: when working for companies such as PepsiCo and Unilever in the US, she would sit down with Walmart one or two years in advance to discuss a seasonal promotion far into the future. Whereas in China, she would think about creating seamless content across multiple platforms that is relevant right now, while building systems that are agile, adaptive and fast.

“When you look at China versus the Western mindset, the Western mindset has been really around scale and efficiency. Be slow, risk-averse, create systems, reduce from five plants to one plant, create one global product platform,” says Whitler. “And the China system is a growth mindset. How quickly can we grow our market share? These two contrasting approaches are colliding.”

Whitler noted BMW’s X1 campaign in China as a good example of straying from a traditional advertising-first, promotion-first type campaign to deliver content that consumers wanted to really engage with. BMW worked with WeChat to livestream a concert, amplified by key opinion leaders spanning different generations. Rather than the token ‘brought to you by BMW’ sponsorship, the brand wove its car into the fabric of the experience, offering gamification and allowing viewers to have a virtual test drive with KOLs, and even vote on the drivers. More than 10 million viewers participated.

Over the past few years, product and marketing innovation has shifted from Chinese companies looking to the West for ideas, to a more balanced dynamic where many companies, such as Apple, Amazon and Facebook are learning from and replicating what’s happening in China. There will always be initiatives that are specific to China’s unique consumer and ecosystem, but there is a sizable increase in innovations that the West can learn from China. We’ll aim to continue to keep you across these through our newsletter and client-specific projects. Go to Page 2 to see this week’s China news and highlights.

To many readers, video gaming may seem like pastime reserved for a small tribe of socially-awkward folk with Vitamin D deficiencies. Yet any marketer in China should be paying attention. China’s $36 billion video gaming market is four times larger than its movie industry and a driving force behind the inclusion of eSports as a medal event in the 2022 Asian Games, and even a possible demonstration sport at the 2024 Paris Olympics as the IOC wrestles between tradition and appealing to vast new audiences.

Chinese consumers’ obsession with gaming should give marketers clues into how their target markets – male and female – see the world. For many, gaming is a form of escapism from boredom during long commutes and the 9am-9pm-6 days a week work schedule in many Chinese firms. But it is also a pillar in many Chinese social lives; a convenient place to meet others with shared interests, and the closest thing many have to playing team sports, brother and sisterhood, and even a place to meet love interests.

When many marketers think of utilising games in their strategies, it revolves around gamification to connect and engage with Chinese consumers. Whilst there are some success stories, most attempts simply aren’t interesting, relevant or well-integrated into other marketing initiatives, with few gamification investments attracting more than a handful of genuinely engaged participants.

Combined with awareness-building initiatives through placements and partnerships, gaming is also looking to become a legitimate sales channel for goods and services. The industry has even created its own sect of KOLs who are supported by millions of live streamers, all potential endorsers of products and services.

On the surface things started off well, with birth rates jumping 7.9% between 2015 and 2016. But it was always likely to be just a blip. 2016 was the Year of the Monkey, which was a much more desirable zodiac for childbearing than 2015, which happened to be a Sheep Year. Superstitious Chinese don’t want their kids to be the docile followers associated with our woolly friends.

There was also some pent up demand from parents who had always longed for more than one child. Yet for most Chinese couples, the 37-year-old One Child Policy had reengineered the national psyche making it socially acceptable to have a single child. The competitiveness of China’s education system also sees parents invest significant sums into their child’s education and development, coupled with the premium paid for safe food and beverage and other extras to ensure their child gets the best start at life. Most couples consider it too expensive to have more than one child.

So should those infant formula brands, Lego, Disney and other companies hoping to sell their wares to Chinese youngins be revising their revenue forecasts down? Not at all. As Chinese families’ affluence rises, a disproportionate share of the increase goes to their child. As they only have one, few cut corners. A child born today will have parents earning 130% more than those born a decade ago. There have been countless surveys with Chinese consumers over the years about how they would spend additional wealth, and a large percentage always cite they’d spend it on their child’s education and development. Even extra budget directed at travel will often be to take the kids away, with families one of the fastest growing outbound tourist segments.

To get a real taste of how important the market for children’s goods and services is, take a trip to the town of Zhili in Zhejiang Province this November. The town famous for its child garment factories has a population of 100,000, which swells to around 350,000 around peak times such as Singles’ Day. The population boost comes from families relocating there in the hope that their kid will become China’s next top child model. Kids can earn up to ¥10,000 ($1,500) a day, with the most popular models reportedly earning a million ($150K) a year. The modelling rates highlight just how lucrative the children’s fashion category is, but also its competitiveness.

Although birth rates are falling, there were still 15.23 million children born in China last year – and a greater portion with affluent parents than ever. Citi Research, in their short video about the infant formula category, summed the situation up well: “having the right route-to-market, especially in the online channel, matters more than the underlying market”. That could be said for virtually every category in China, where there remain enormous target markets still willing to spend, regardless of slowing population or economic growth. China Skinny can assist with your route to market. Go to Page 2 to see this week’s China news and highlights.

There’s no question the results of tensions can be challenging for exporters, but they aren’t a scratch on what happened to Japanese brands in 2012 over an island territorial spat in the East China Sea. It was one of the most fearful displays we have seen when it comes to how powerful China’s state media can be in swaying public opinion. Anti-Japanese sentiment soared among consumers, driving protestors to wreak an estimated $126 million worth of damage to Japanese-branded goods, buildings and related sales. In two waves of protests, hundreds of Japanese-branded cars were smashed and overturned, rocks were thrown at Japanese restaurants, Japanese factories were set ablaze, Japanese buildings were broken into and ransacked, and stores selling Japanese goods were vandalised, causing many to shutter, including the $8.8 million destruction of an AEON supermarket.

The key takeaways from our Japanese friends is that the impact of geopolitical tensions – as undesirable as they are – are generally short term blips, if they have any impact at all. If you make quality products and services that connect with Chinese tastes and preferences and are marketed well, the shoppers are likely to stay loyal, or soon come back wanting more. Here’s to that.

Since Australia established formal diplomatic ties with the People’s Republic of China in 1972, the country’s fortunes have become increasingly linked to the Middle Kingdom. No Western country’s economy has benefitted more from China’s rise than Australia. Much of China’s unprecedented economic growth has been built with Australian iron ore and powered by Aussie coal and liquified natural gas. In a way, Australia’s resource traders blazed a trail for Australian exporters, teaching cultural lessons about doing business in China, and raising China’s profile as a destination for exports.

Since Chinese consumers have started entering the middle class, Australian brands have been relatively quick to make their goods and services available to them. Over the past couple of Singles’ Days, Australian products have been the third and fourth highest ranking country for product origin, even though Australia isn’t even in the top-50 countries by population.

Australia’s success in exporting to China always had pretty good odds. Australia’s relatively close proximity to China, in both flight time and time zones, makes it easier to get up to the market to do business. And unlike other major western economies, Australia doesn’t have a large domestic base or similar countries close by to send their wares, so it has always had to be a little more adventurous when prospecting for export markets. It is also the often-unthanked Chinese residents in Australia and visiting tourists who have helped promote many Australian things to their friends and family back in the Mainland. No country outside of Asia has more people of Chinese heritage per capita than Australia, on top of the 1.4 million Chinese who visited Australia last year.

Australia’s position as one of the pioneering, best practice and reliant exporters to China – balanced with its increasingly precarious stance on geopolitics – makes it one of the most important and interesting relationships to monitor in today’s globalised world. That’s why China Skinny was honoured to be back again this year working with Austcham Shanghai on the second annual Westpac Australia-China Business Sentiment Survey which launched yesterday in Sydney. The survey provides a platform to really understand how Australian businesses on the ground in China are faring in light of the geopolitical tensions and slowing economic growth.

To Australian businesses’ credit, we had 211 complete the survey this year – 33% more than last year. Overall, sentiment was down 6.7% from last year but remained largely optimistic – with 71.6% either optimistic or slightly optimistic about the next 12-months; 81.5% in their five-year outlook. The results also pleasingly demonstrated an increase in Australian businesses’ forecasting profitability in 2019 – a strong 78.9%, from 62.5% in 2018.

One of the promising findings from the survey was that Australian businesses appear to be maturing and realising that China is a market that requires tailored initiatives. 61.1% of businesses surveyed will offer unique products and services for the China market this year – and are 32% more profitable as a result.

Domestic consumption was again considered the most important opportunity for Australian businesses and is also being supported by 26.6% investing in market research and development – 10.7% more than last year. 74.9% have a digital strategy in place or in development, with 59.7% having one that incorporated ecommerce. For those businesses already selling online, they are selling on an average of 2.5 platforms, versus 2 last year. Almost a quarter of businesses surveyed are early adopters of New Retail, with 66.0% of these businesses experiencing a 10% rise in revenue and 55.4% benefitting from increased brand and market insights.

There’s many, many more interesting insights throughout the report. The results aren’t just a barometer for other Australian businesses exporting to China; they provide any company working in China with a great benchmark to understand the common challenges and opportunities. We’d recommend you download the report and see for yourself. You can get it by clicking/tapping here.

A special acknowledgement to our own Alexander Kelso and Austcham Shanghai’s Stephanie Smith, who have worked tirelessly behind the scenes to bring the survey to life. Go to Page 2 to see this week’s China news and highlights.

Reports of such advertising and other headline-grabbing news such as hordes of Chinese tourists lured to Sydney University believing it was a setting in Harry Potter movies may have some believe that Chinese consumers are a gullible posse. Don’t be misled. Whilst some consumers in lower tier cities are making discretionary purchases for the first time and lack some confidence, most middle-affluent class Chinese are incredibly sophisticated. While we’re seeing a rise in impulsive purchases, Chinese consumers typically don’t take things at face value and do significantly more research before purchasing products and services than their Western peers.

Much of this research comes down to an inherent lack of trust. This is confirmed in virtually every project China Skinny works on, in which Chinese consumers’ purchase journey involve an extensive series of touch points across online and offline channels before a purchase is made.

Although China’s marketing landscape is littered with fakes, foreign brands shouldn’t take Chinese consumers to be fools – they are anything but. It is good to be aware of the misleading claims out there, but don’t dare to try it yourself. It will be found out and shared on social media en masse. Chinese consumers are unforgiving to those who disrespect their intelligence, particularly foreign brands. China Skinny can assist to ensure you can still succeed by keeping everything above board.

On another note, we’re hiring! If you’re a native English speaker based in Shanghai who is curious, intelligent and personable and happy working across diverse and fascinating projects, go ahead and apply. More information here. Go to Page 2 to see this week’s China news and highlights.

Research was recently published claiming that Chinese mothers are moving away from traditional frozen ready meals, like dumplings and buns, and instead opting for frozen full meal sets such as beef noodles. Whilst this isn’t untrue, our research has found a much bigger trend pointing to a shift away from frozen foods altogether.

On numerous research projects, China Skinny has visited many homes across different China cities. In the kitchens, small freezers are stuffed with once-popular products like bags of dumplings coated with freezer-burn, seemingly untouched for many a moon. The ageing packs are representative of frozen formats falling out of favour with Chinese consumers as alternatives perceived as healthier become more convenient and accessible.

With healthy and natural having become key criteria for purchasing food, frozen options sit many rungs below fresh on the hierarchy of healthiness. That’s nothing new, but what has changed is the accessibility of fresh food, particularly for busy mothers. With stores like Hema/Fresh Hippo, 7Fresh and even the massive RT-Mart now delivering orders within 30-minutes, the incentive to have quick access to frozen products has diminished. There are currently 355 million users of delivery apps in China – a quarter of all Chinese are regularly having food brought to their homes and offices.

While the booming restaurant meal delivery service is cannibalising many food categories and changing countless restaurants and cafés’ strategies, China’s ever-discerning mothers still want an element of food preparation. They wish to have more control over their cooking, ensuring it is fresh when served – not soggy or luke-warm – while still deriving the emotional self-satisfaction of feeling they having played a part in cooking the meal. These factors, coupled with being time-short, have contributed to a stark rise in the demand for ready-to-cook fresh/chilled meals in China.

As brands define the appeal of their products, ingredients, packaging and sizes for the Chinese market, they should also consider the format. Frozen, tinned or other forms of preservation has provided a way for food to make the long trip to China and still be good for sale. While there is likely to long be demand for such food, brands should consider product development for alternative formats that will meet the growing demand for fresh, natural and convenient food.

Food is just one category that is being turned upside down by New Retail, and brands across almost every category should be cognisant of the changes to ensure that they aren’t left behind.

As China’s urban millennials have become the most sought-after consumers on the planet, marketers have been seeking less contested consumer groups to target their wares. The next growth areas that we often hear about are the rural consumers and those with silver hair.

China’s heaving Internet population stood at a whopping 829 million at the end of 2018 – 57 million or 7.3% more than the year before. The segment that has the most room for growth – Chinese living in rural areas, grew just 6.2% to 222 million, indicating a widening digital divide between China’s urban dwellers and those in the countryside. That’s not a great sign for consumption in these areas. The Internet represents the most promising channel for rural consumers to buy things – they can’t just pop down to the local IKEA to purchase a new sofa. Another barrier for sales is that rural consumers make less than a third of what urban-dwellers make and are much less likely to spend it on aspirational foreign brands.

If we look to the Baby Boomers in the West – the empty nesters riding on the back of a lifetime of savings and equity gains on their house and other investments – they have been spoiling themselves while their joints still allow it. Yet most of the seniors in China aren’t such free spenders. They have grown up in austere times, and have an inherent necessity to save for a rainy day and be frugal, even more-so than those who were around during The Great Depression in the West. The rising consumer debt in China can almost be solely attributed to the consumption-crazed youth; people between the ages of 24 and 35 account for more than 70% of consumer borrowers in China.

While there will inevitably be increasing opportunities by targeting China’s silver surfers – there will be a half a billion of them by 2050 – they will remain much less likely to pay a premium for better products and services than their younger peers. They also won’t be as easily wooed by foreign lifestyles, products and services.

In short, millennials and the younger post-95s/Gen-Zs remain the most lucrative consumer group in China. Yet the rules to reach and resonate with them are constantly changing. Companies need to dive much deeper in understanding their emotional and functional needs, what influences them, where they research and buy, and how to make advocates out of them. If a brand can understand and serve those needs, there’s still plenty of legs in the contested younger demographics in the city – particularly the lower-tier cities. China Skinny can work with you to ensure you’re there. Go to Page 2 to see this week’s China news and highlights.

Perhaps even more surprising is that the Chinese company is not the well-known Tencent of WeChat fame, or even Alibaba (they were 15th on the list), but a mere $43 billion company, Meituan Dianping, which most people outside of China have never heard of, and probably can’t pronounce.

Meituan is best known for food delivery, restaurant reviews, hotel booking, movie tickets and acquiring bike share giant Mobike. The company topped the table for “pioneering transactional super apps” making the most profound impact on both industry and culture while showcasing a variety of ways to thrive in today’s volatile world. In the first half of last year, the company facilitated 27.7 billion transactions (worth $33.8 billion) for more than 350 million people in 2,800 cities. That’s 1,783 services every second of every day, with each customer using it an average of three times a week. The company leverages user consumption data, including price sensitivity, to recommend other services they’ll like, taking advantage of its consolidation of service offerings, much like China’s other all-serving tech giants.

One of Meituan’s core services, food delivery, is representative of one of the most exciting consumer developments that has been happening in China over the past few years. We’re not talking the meandering Postman Pat or the daily milk round, these are on-demand delivery services that can have everything from noodles and coffee, to meds and adult toys, delivered around the clock in less than 60 minutes, often in half that time. It is a service that plays to a Chinese consumer who craves convenience and possesses little patience.

Delivery in China takes advantage of its densely-populated cities, allowing a concentration of delivery people. In addition, the broadening of products being delivered that are core to the New Retail explosion means delivery is no longer just at meal times, or located around ecommerce logistic hubs. Instead, this revolution is creating economies of scale across wider geographies, spreading the costs of delivery workers throughout the day.

One of the most powerful innovations in delivery is what happens behind the scenes. Like many things in China, companies are utilising their enormous pools of data, and making sense of it with Artificial Intelligence. Meituan’s Smart Dispatch system, for example, calculates 2.9 billion route plans every hour to optimise the delivery for its 600,000 electric bike riders to pick up and drop off up to 10 orders at once in the shortest time and distance. Since Smart Dispatch launched in 2015, it has reduced average delivery time by more than 30%, and riders complete 30 orders a day, up from 20, increasing their income.

For brands selling in China, the penetration of delivery is another example of the unique way that Chinese consumers shop and their expectations. This and other distinct purchase behaviour in China should be factored into development of marketing strategies. China Skinny can assist with this. Go to Page 2 to see this week’s China news and highlights.

In China, you won’t find locals spending their weekends combing garage sales for deals, and even the ecommerce-mad populous buy a much smaller share of second-hand goods than the eBay-Craig’s List-Gumtree-Trademe-type shoppers of the West.

Chinese consumers’ reputed love of all that is new comes down to a number of factors. We don’t need to look back far in history – during the reign of Mao – when new goods were in scant supply, creating a sense of prestige when buying something brand new. This has been passed over a generation, and its legacy has contributed to the all-important status that comes with buying new versus the stigma attached with goods that have been loved by someone else.

Another contributor is Chinese consumers’ inherent lack of trust. In China it is far more common to fake a second-hand good, and more difficult to trace, than a new product that can be bought directly from the source or a trusted vendor. There are also more reliable courses of action if something goes wrong. Couple that with the seemingly-infinite supply of cheap, new things, and all roads appear to lead to brand spanking new.

Nevertheless, the single-minded view that everything must be shiny and new is starting to waver. One of the most notable signs is the car industry. Half a decade ago, five in every six cars purchased smelt new (although not the new car smell as we know it in the West). Last year, as new car sales contracted 2.8%, there were 11.5% more secondhand cars bought. Although the ratio is still far behind America, where pre-loved outnumber new by more than double, China’s split is growing fast, from 43.0% in 2017 to 49.1% last year. The rise in the desirability for second-hand cars is followed by other segments from luxury goods to clothing swaps.

The trend is being driven by millennials who don’t have the same historic hang-ups as earlier generations and seek value. They’re familiar with consuming things used by others with the explosion of the sharing economy, covering everything from fashion to bicycles.

What does that mean for brands? In many product categories, the competitor set will increasingly span beyond the other new things for sale online and in stores to include second-hand goods. Consumers may also look to resale value, service and even sell-back options when making decisions around purchasing.

The trend spans beyond goods too, contributing to preferences in the service industry such as tourism. More Chinese travellers are finding allure in the edgy, hipster interiors for hotels, restaurants, attractions and stores, when in the past, it would have been considered dirty and rundown. It is another sign of maturing Chinese consumers, driven by the youth – one which will hopefully giving the environment a small reprieve.

On the subject of Chinese tastes and preferences, if you’re looking to learn more while taking in a few memorable spring days, China Skinny’s Mark Tanner will be speaking at China Connect in Paris on March 12-13. It is one of the most-established and thoughtful China-focused conferences outside of China – we hope to see you there! More information here. Go to Page 2 to see this week’s China news and highlights.

On the surface the choice seems like an outrageous misalignment with the esteemed NBA brand. The NBA has some of the most athletically-impressive beings of the sporting world – poles apart from the effeminate 65kg pop idol. Yet the expensive decision is likely to bear fruit.

In choosing a target market, they will look to the Gen-Zs (those born in the mid-90s to early 2000s) as having a high propensity to support and spend on the game. Gen-Zs are an open-minded generation in a society that has never been so enthusiastic about sport, causing them to explore and embrace sports more than the generations before them. They’re also big spenders. Although most haven’t yet banked a single pay cheque, they account for 15% of household expenditure, versus just 4% in the USA and UK. As the only child/grandchild of six doting adults, and having never lived through tough times, they are free spending with seemingly few worries in the world.

There have never been more options for consumers to spend their money. Sport – like everything – has to find ways to boost the entertainment factor to stay relevant. Whilst there would be better ways to entertain their loyal fan base, they are likely to entertain a segment who may have never considered the NBA before. Although many of the NBA’s execs are unlikely to get down to Cai Xukun’s music, they are putting their own opinions aside to attract a new and wider pool of fans. Hats off to the league for embracing China’s countercultures – those who dare to rebel from entrenched traditional values – something brands are increasingly having to do to reach the younger, freer-thinking generations.

On that note, we’ll leave you to celebrate the coming of the Pig. Happy Chinese New Year, wishing you a prosperous and productive Zhūnián. We’ll be back after the break – enjoy this week’s Skinny. Go to Page 2 to see this week’s China news and highlights.

We have just passed the 200-day mark of the US-China trade war, and what a 200 days it has been! Whilst we are finally seeing some positive signs that an agreement could be imminent, there has been plenty of commentary about the beating that America’s reputation has taken in China.

There’s no discounting that the spat has sped up the rise of nationalism in China, and there are consumers who may have directed their spending away from American businesses, but the impact has been much less severe than it could have been.

One of the key differences between the US-China trade war and the disputes with Japan and South Korea is that the propaganda machine has not yet ramped up criticism of the US. China also hasn’t introduced regulations such as it did banning tour groups to South Korea. Such plays wouldn’t be well timed during the already-precarious trade negotiations with the US.

Regardless of its challenges, WeChat remains China’s super app with no other app being better positioned to evolve and stay relevant to Chinese consumers. To Allen Zhang’s and Tencent’s credit, they have recognised that they need to do this. There are some good lessons for any brand in China – you may be ‘killing it’ in China today, but you need to constantly review your position to stay that way. China Skinny can assist you with just that. Go to Page 2 to see this week’s China news and highlights.